Checklist Mindmap

INV theme
History
Product
Business model
Segment breakup
Industry
Key Parameters
Peers
Reasons to buy
Guidance
Reasons not to BUY
Mental models
Stock template
% allocation
When to sell
Industry history
Prior probability
Company history
What all went WRONG IN INUDSTRY
Why Not something else
Portfolio aggregation risk
What can kill the idea

See key parameters
Why Re-rating
Ecosystem
See CF Analysis
Working capital
D/E =
Debt
Business model
BS analysis
Sh pattern
leverage =
Promoters
XX
FIIs & DIs
AVG [2006]
Profitability
PB
Valuation
Current [TTM]
EV/EBITA
Owner Earnings ~ = EBITA
EBITA excluding
ContrarianValueEdge.com
Capital employed
Revenue mix
Product wise [FY14]

Other
Segment breakup
EBITA mix
Product level economics
Brand power
Pricing power
Economies of scale
Easy/difficult for competitor to replicate
Quality
Entry Barriers
Does it make life difficult for competitors?
Porter 5 forces
Environmental issues
Intensity of competition among existing players.
Scale, capacity
Competitive advantage
Access to skilled labour
Capital intensive ?
Business model
Threat of substitutes
Bargaining power of customers
Bargaining power of suppliers
Debt/EBITA
Debt/4yr avg OCF
Debt/4yr avg FCF
Bullet proof capital structure?
Debt repayment schedule

(EBITA+ interest )/Interest
Consistency
LT
Durablility
Growth
ROCE
Predictability
No material growth
Equities = Bonds
Very HIGH growth NOT required

Certainty matters MORE over HIGHER GROWTH
Lower the better
Product [Business]
Capex + Working capital
Avoid businesses with Both HIGH
Capex
Working capital
Re-investment potential
Strong entry barriers
High RoCE
Market perception
Margin expansion
PE expansion/Contraction
What will drive share price
Revenue growth
Price Risk
Business Risk
Growth
Key Risks
Scale of opportunity
Mgt Risk
Key Parameters
EBITA
Implied EV
50% decline in price after 3 yrs
Current EV
Yes
Ready to hold for 5-10 YRS
EV/EBITA [TTM]
Core EBITA FY14
Valuation
PB
Capital Allocation
Incl FA + Working capital

High Payout ratio, ROCE & Growth
Objective
Capital distribution [Div]

High quality business
How to judge mgt
Good ROE over a PERIOD OF TIME

Vision
Subjective
INTERVIEW
Size of opportunity
Threat
Probably OO 2 type operator

Integrity
Basant rule: Innocent till proven guilty

Red flags
Mgt
People
Competency
Operating skills
Vision
Execution
Compensation
Good business
High probability of good mgt
Remuneration
Bad quality business
High probability of bad mgt.

1999-2002
2003-09
2010-14
2014
CCC
2002-08
2009-14
Receivable days
2014
Strong competitive advantage

Capacity utilisation
Gross profit
CCC = Cash conversion cycle

Pain/Problems business solve
People
Product
Potential
Other positives
4Ps
Predictability
Reasons to buy
LT Trends
Strong competitive adv
Other negatives
Reasons not to BUY
No history of earnings power
What went wrong in past
Other negatives
Possibility of equity dilution
Do Pre-mortem
What can kill the idea
INR 30-36
1993-97
INR 40-48
1998-2011
53
FY12
58
FY13
60
FY14
INR USD
FY05-11
FY99-2002
ASP
FY97-98
xx
FY04-14
FY09-14
xx
xx
FY11-14
FY04-14
2009..14 = xx%
xx
Sales CAGR
USD terms
FY11-14
Margin analysis
xx
xx
EBITDA margin
Depreciation % sales
PBT breakup
xx
Interest % sales
xx
PBT Margin
xx
FY14
8 Y AVG
Asset turnover
Div Payout ratio
15 yr AVG
Du Pont analysis [4yrs AVG]
xx
Pre-tax RoA
PBT/Total assets
Profitability
xx
Leverage [Assets/Equity]
FY14 =1.8x
42%
Pre-tax ROE AVG
34%
Book tax rate
30%
Cash tax rate
Tax rate
x%
Net margin
Cash flow analysis
xx
1997-2001
xx
FY03-10
xx
xx
Capacity Utilisation
FY11
FY 14
xx
1997-2004
xx
2005
xx
xx
2007
Capacity
2008-11
xx
FY 14
EBITA
Asset turnover
ROIC
ROIC - Interest rate
ROIC + Spread * Debt-equity ratio
ROIC [4yrs avg]
Spread
Derived ROE
xx
xx
FY99-2010
FY11-14
Power
FY02-11 avg
FY12-14
Capacity
Core sales
EBITDA margin
FY04 to 08
xxx
Emp cost
Emp cost CAGR
Margin analysis
7% CAGR
FY09 to 14
Capacity
Accounting adjustments
xx
FY 99-2001
xx
FY03-10
xx
FY12-14
Gross margin
Reason Gross margin

FY 99-2001
FY12-14
Gross margin
FY03-10
Distribution channels
Society trends
Is it a win-win situation for ecosystem
Exposure to inflation
Environmental issues
State of labour
Ecosystem
Changes in technology
Customers
Subtopic 1
Suppliers
Regulations
2009
2010
2011
2012
2014
1995
2008
History
2004
2002
2000
1999
1998
1997
FY01-08
Receivable days
FY10-14
FY 14
xx
FG
NWC
FY 01-07
xx
Inventory
RM days
FY08-13
FY14
Cash flow analysis

% of sales
FY01-08
XX
FY11-14
XX
FY09 & 10
xx
XX
XX
Working for business
Mental models
Working against business
Detailed Annual report
Since 1999
Other positives

Checklist Mindmap

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Checklist Mindmap

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INV theme

Why Not something else

Portfolio aggregation risk

What can kill the idea

FIIs & DIs

Product wise [FY14]

Product level economics

Does it make life difficult for competitors?

Bullet proof capital structure?

Debt repayment schedule

Very HIGH growth NOT required

Lower the better

Capex + Working capital

Avoid businesses with Both HIGH

What will drive share price

50% decline in price after 3 yrs

Ready to hold for 5-10 YRS

Incl FA + Working capital

Capital distribution [Div]

How to judge mgt

Good ROE over a PERIOD OF TIME

Probably OO 2 type operator

Basant rule: Innocent till proven guilty

High probability of good mgt

Bad quality business

High probability of bad mgt.

Strong competitive advantage

CCC = Cash conversion cycle

Pain/Problems business solve

Strong competitive adv

Reasons not to BUY

No history of earnings power

What went wrong in past

What can kill the idea

Div Payout ratio

Du Pont analysis [4yrs AVG]

Pre-tax ROE AVG

Book tax rate

Cash tax rate

Cash flow analysis

ROIC [4yrs avg]

Reason Gross margin

Is it a win-win situation for ecosystem

Cash flow analysis

Working for business

Detailed Annual report

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